Declaring that "inflation is likely to be subdued for some time" but also admitting that employment and housing continue to pose threats to the economy, the Federal Reserve Open Market Committee voted Tuesday to keep the target interest rate right where it has been, between 0% and 0.25%.
At the same time, the FOMC said it would, as expected, end its purchase of$1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt at the end of this month. That action will free interest rates to move with markets.
In its statement, the committee said it saw evidence since its last meeting in January that economic activity is strengthening and the labor market is "stabilizing." However, the Fed governors noted that consumer spending remains "constrained by high unemployment, modest income growth, lower housing wealth, and tight credit" and said that employers remain reluctant to hire. They also noted that housing starts "have been flat at a depressed level."
The FOMC outlook, according to the statement, is for an economic recovery that will be "moderate for a time." It said, "Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
The Fed governors also said that its last remaining program intended to inject liquidity into the financial system, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.